Wednesday, November 26, 2014

The Disenchantment of Europe

LONDON – The recent European Parliament elections were dominated by disillusion and despair. Only 43% of Europeans bothered to vote – and many of them deserted establishment parties, often for anti-EU extremists. Indeed, the official results understate the extent of popular dissatisfaction; many who stuck with traditional parties did so reluctantly, faute de mieux.

There are many reasons for this political earthquake, but the biggest are the enduring misery of depressed living standards, double-digit unemployment rates, and diminished hopes for the future. Europe’s rolling crisis has shredded trust in the competence and motives of policymakers, who failed to prevent it, have so far failed to resolve it, and bailed out banks and their creditors while inflicting pain on voters (but not on themselves).

The crisis has lasted so long that most governing parties (and technocrats) have been found wanting. In the eurozone, successive governments of all stripes have been bullied into implementing flawed and unjust policies demanded by Germany’s government and imposed by the European Commission. Though German Chancellor Angela Merkel calls the surge in support for extremists “regrettable,” her administration – and EU institutions more generally – is substantially responsible for it.

Start with Greece. Merkel, together with the European Commission and the European Central Bank, threatened to deprive Greeks of the use of their own currency, the euro, unless their government accepted punitive conditions. Greeks have been forced to accept brutal austerity measures in order to continue to service an unbearable debt burden, thereby limiting losses for French and German banks and for eurozone taxpayers whose loans to Greece bailed out those banks.

As a result, Greece has suffered a slump worse than Germany’s in the 1930’s. Is it really any wonder that popular support for the governing parties that complied with this diktat plunged from 69% in the 2009 European Parliament election to 31% in 2014, that a far-left coalition demanding debt justice topped the poll, or that the neo-Nazi Golden Dawn party finished third?

In Ireland, Portugal, and Spain, the bad lending of German and French banks in the bubble years was primarily to local banks rather than to the government. But here, too, the Berlin-Brussels-Frankfurt axis blackmailed local taxpayers into paying for foreign banks’ mistakes – presenting the Irish with a €64 billion ($87 billion) bill, roughly €14,000 per person, for banks’ bad debt – while imposing massive austerity.

Support for compliant establishment parties duly collapsed – from 81% in 2009 to 49% in 2014 in Spain. Fortunately, memories of fascist dictatorship may have inoculated Spain and Portugal against the far-right virus, with left-wing anti-austerity parties and regionalists benefiting instead. In Ireland, independents topped the poll.

The misconception that northern European taxpayers are bailing out southern ones also prompted a backlash in Finland, where the far-right Finns won 13% of the vote, and in Germany, where the new anti-euro Alternative für Deutschland won 7%.

At Merkel’s behest and with the complicity of the ECB, which waited until July 2012 to quell a bond-market panic sparked by eurozone policymakers’ mistakes, the Commission also imposed eurozone-wide austerity, causing a cumulative loss of nearly 10% of GDP in 2011-13, according to the Commission’s own economic model. By plunging Italy into a deep recession (from which it has yet to recover), austerity sank interim Prime Minister Mario Monti’s broad-based coalition and boosted Beppe Grillo’s anti-establishment, anti-euro Five Star Movement, which finished second in the European Parliament election.

Merkel also demanded a stifling and undemocratic EU fiscal straightjacket, which the Commission duly enforces. So when voters throw out a government, EU fiscal enforcer Olli Rehn immediately insists that the new administration stick to its predecessor’s failed policies, alienating voters from the EU and pushing them toward the extremes.

Consider France. After François Hollande became President in 2012 on a pledge to end austerity, his Socialist Party won a large majority in parliamentary elections. But Berlin browbeat him into further austerity. Now, with both the center right and the center left discredited – together, they received only 35% of the popular vote – Marine Le Pen’s racist Front National topped the poll by promising radical change.

Along with a chronic economic crisis, Europe now has an acute political crisis. Yet the EU establishment seems bent on pursuing business as usual. In the parliament, a vocal but fragmented minority of critics, cranks, and bigots is likely to push the center-right and center-left groups, which still have a combined majority, to club together even more closely.

The low turnout and weakening of mainstream parties gives the European Council – national leaders of the EU’s member states – a pretext to continue cutting deals in smoke-free rooms. First up will be the choice of the European Commission’s next president. The outgoing president, José Manuel Barroso, claims that “the political forces that led and supported…the Union’s joint crisis response…have overall won once again.” Merkel wants to stick to current policies that have failed to deliver growth and jobs.

Perhaps the man to shake things up is Matteo Renzi, Italy’s dynamic 39-year-old prime minister. In office since February, he won a resounding 41% of the vote, twice that of his nearest rival. Already committed to reforming his country���s crony capitalism, he now has a mandate to challenge Merkel’s crisis response. The timing is perfect: Italy takes over the EU’s rotating presidency in July. Renzi has already called for a €150 billion EU investment boost and greater fiscal flexibility.

Instead of a eurozone caged in by Germany’s narrow interests as a creditor, Europe needs a monetary union that works for all of its citizens. Zombie banks should be restructured, excessive debts (both private and public) written down, and increased investment combined with reforms to boost productivity (and thus wages). The fiscal straightjacket should be scrapped, with governments that borrow too much allowed to default. Ultimately, the fairer, freer, and richer eurozone that would emerge is in Germany’s interest, too.

Europeans also need a greater say over the EU’s direction – and the right to change course. They need a European Spring of economic and political renewal.

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    1. CommentedHergen Heinemann

      "Renzi has already called for a €150 billion EU investment boost and greater fiscal flexibility"

      Fine, now let´s find somebody to pay for it. The nicest would be to let Germany pay to resolve the faults other countries made in using foreign credits for consumption or unviable projects.

      "In the eurozone, successive governments of all stripes have been bullied into implementing flawed and unjust policies demanded by Germany’s government and imposed by the European Commission"

      No country was bullied into anything by Mrs. Merkel. They were all free to do what they wanted. The only thing Mrs. Merkel mentioned, were the conditions she thougt rightful and neccessary for Germany to take over any risks and finacial support for these countries. No more.

    2. CommentedSabine Meisner

      An economic adviser to the EU Commission until recently. Mh-mh. He did an excellent job, it seems. Oh, he happens to be a germanophobe, socialist Frenchman, surprise. Was he better paid than the British PM, like so many people in Brussels?

    3. CommentedAlasdair MacLean

      It is all the fault of the Germans. Rather, take them out of Europe and let them return to the mark and see what happens to the euro and Europe. Kaput!

    4. CommentedNichol Brummer

      This agrees with my sentiments. But how can Europe break that 3% barrier that has been hardened by Germany, with support from countries like the Netherlands, Finland, to a level where it now seems set in stone? Why is it that Hollande failed to get done what he wanted? How can Renzi succeed where Hollande failed? Is there a way to break the unity that seems to exist inside Germany for imposing everlasting austerity?

    5. CommentedJoshua Ioji Konov

      Add to all of this: the system of subsidies, VAT and low business taxes in many EU countries is a genuine Wealth redistribution from the poor to the rich, it is ridiculously simple system that boost corruption whereas the governments are in charge of lending and subsidizing, and elected officials are controlled by Brussels!

    6. Commentedmarkets aurelius

      Excellent summary, but I think it misses a larger point: Voters' loss of faith in their governments -- in Europe and the USA -- is perfectly consistent with the facts. Voters rightly perceive their elected officials are acting in bad faith by serving the bankers' interest above all others, and they effectively boycott the election process. When they do vote, they support cynics on the right and the left who share a common desire to violently remake their societies.

      Politicians and regulators obviously are acting in their own enlightened self-interest: the bankers are the source of their future employment and current personal enrichment. As M. Legrain points indicates, the ECB and the EU executed commands given them by politicians acting on behalf of the so-called national champion French and German banks. Absent pliant governments at home, these banks surely would have remained insolvent and ultimately would have been bankrupted as a result of their reckless behavior, had not local taxpayers in Ireland, Portugal, Spain, Greece, etc., been coerced into bailing them out. Had these individuals -- i.e., bankers -- not been saved by their host governments, their accumulated wealth would have evaporated, and their institutions would have been annihilated by market forces. As it turned out, it was only by controlling the levers of state -- i.e., central banking and taxing authority in the EU member states -- that they were saved. The states' monopoly of force, vis-a-vis law enforcement, thus was turned on the voters-taxpayers to do the bidding of the banks.

      In the USA, we have something similar. Absent a pliant US Fed, Treasury, Congress and regulatory edifice willing to literally re-write law and regulation in favor of insolvent investment and commercial banks, the accumulated wealth of the bankers would have been vaporized, and the banks themselves would have ceased to exist. The complete and total breakdown of the rule of law here is such that bankers now are above the law: Only banks pay fines. No individuals ever are cited for actually breaking the law, yet somehow the banks are made to pay billions of dollars for violating some statute or other. This is a farce of the highest order (and nothing more than a recurring cost of doing business to bankers, which ultimately falls on shareholders ... so complete is the shield around bank managements). The bankers takeover of law-making and regulation in the USA is so complete that the greatest fraud in the history of the world will pass into history without a single case being brought or conviction obtained. One laughs recalling President Obama and his attorney general, Eric Himpton Holder, Jr., claiming the bankers never actually broke the law when they aided and abetted fraudulent behavior -- even though the Federal Bureau of Investigation testified to Congress in 2004 that fraud had become "epidemic" in the mortgage markets.

      Voters and taxpayers no longer trust their elected and appointed officials to do the right thing -- i.e., enforce the law. They see all too clearly the cartels within their societies are above the law. This gives rise to resentment and anger, which many times in history has produced what we are seeing now in the European elections -- would-be political leaders willing and able to harness this anger for their own cynical ends, i.e., their own enrichment and power at the expense of individual rights.

      We have now entered the phase of history in which members of the various cartels controlling governments on the inside will be battling would-be authoritarians on the outside seeking wealth, power and influence. In Europe and the USA, markets exist to enrich politicians and their cartel bosses. This is a fight over spoils of government control.

    7. CommentedMK Anon

      thanks you Philippe for this brilliant article ! This is exactly how I think. EUropeans didn't suddenly become racist, niether the greek became nazi, as most other articles focus on in this site. The other articles, by pointing in the wrong direction, make things worse.

      The point you make and that should be said over and over again is that the poeple of Europe are disgusted by the fiscal (austerity) and monetary (almost deflation now) policies. These policies are defended by Germany, at a huge expense for the other countries. At the german-french summit soon after Holland's election, all Holland could get was an authorization to a deficit of 1.5% higher for 2 years: there I knew all was over: Germany made absolutely zero compromise (since France was going to have that deficit anyway..). The opportunity from Holland's election momentum was lost.. and submissive Holland slipped, fell and will never stand again, this is all what this turncloak deserves.

      Germany made no compromise with other either. For example, optimal monetary policy are totally different for germany anf greece: for Germany, which has a lot of saving for their elderly in the context of a declining population, deflation is good.. the real purchasing power of their savings increases. But deflation is a torture for highly indebted countries like greece. Not only does the real debt increases as real tax revenues decreases: nominal wages have to be decreased as well. It is however clear that improving competitiveness through lower inflation that the rest of the EU would be far more easy, reduce the debt faster. And in this example, Germany clearly won it: now the euro zone is almost in deflation. And to to make the injustice bigger: Germany is borrowing cheap and lend to Greece at a much higher rate, making an additional profit out of the situation. And let's remind here that it's about millions of people, not cold economics: health care is reduced, children don't feed properly, a suicide wave went through greece, there are no work for the young workers. and the misery spreads everywhere .. all that for germany to have it's no inflation policy that serves those who have plenty of savings there.

      Speaking of the contest vote, the revolving doors between industry and commission-ECB should be mentioned, as well as the lobbies: the EU is not working for its citizens, but for big corp. For example: the atlantic free trade zone is being negotiated in secret ... for us, not the lobbies and big corp who have access to negotiation, and the NSA who is spying our non-elected European negotiators. But not only the process is flawed, it's economic background is also: the millions jobs they sell doesn't exist. But having back the millions jobs that were destroyed by the financial free trade zone (EU-US) would be good. The loss of sovereignty that most people complain about with the EU will just be a lot worse when no legislation will be made by any government without having to pay big corp billions to get their consent. If the EU understand the message, they should stop the TTIP right now. And if they don't, we'll take care of that, don't worry. We did it with the AMI already..

      Mentioning also the contrast between, on one hand, the increased competition between countries's legal and social systems, as well as their workers , and on the other hand, the the decreased concurrence between companies due to EU's policy "winner takes all" and the emergence of the groups that are big enough to benefit from the EU market, legislation, and end up in a monopoly position. (see the CAP eg). Again, europe is not working for its citizens.